Madhya Pradesh’s move leaves tribal folk more vulnerable.

The government could have simply opted for harsh punishment for forced recovery and usury/exploitation while increasing the reach of formal finance, not just through bank penetration but also by shifting to direct-cash-transfers for various government benefits.

On paper, the amendment to Madhya Pradesh’s Anusuchit Jan Jaati Sahukar Viniyam 1972 that the Kamal Nath government has brought seems noble. After all, governments must protect the marginalised from exploitation and usury—there have been enough reports, this year alone, of bonded labour to suggest that such exploitation hasn’t been fully eradicated. The amendment not only waives off all existing loans from unofficial sources for tribal people in the state but also provides for jail-term of up to three years and a fine of `1 lakh for private, unlicensed moneylenders who try to recover the loan forcibly. Even licensed moneylenders are no longer free to negotiate the interest rate with the borrower. But, not only does the Nath government miss the woods for the trees in the matter, it, in fact, leaves tribal people in the state far more vulnerable than before.

Madhya Pradesh ranks 25th out of 36 states and Union Territories in the Crisil Inclusix 2018 report. While it does ‘above average’ on credit penetration, it is ‘below average’ on branch penetration; only 37% of the bank branches in the state were in rural areas, at the end of June 2018, and each bank office was serving 10,209 people against the national average of 9,280; commercial banks were serving 14,781. While 17 out of the state’s 51 districts have significant tribal population, just four of the 17 had an ‘above average’ showing in Inclusix. It is, thus, likely that the bulk of credit penetration from formal sources is happening in the non-tribal districts in the state. But, while the state needed to crack down on usurious rates and linked exploitation, it has instead adopted a solution that will mean moneylenders simply stop lending to tribals. Without the banks that they need, tribal folk will then simply have no access to credit. The PM Jan Dhan Yojana may have connected a majority to formal finance through bank accounts, but as long as they are thought of as “unbankable” for credit—and the banks can’t be faulted for this—the waiver means a ‘from the frying pan to the fire’ fate for Madhya Pradesh tribals. It is also unclear whether the waiver extends to all informal loans, including loans from relatives. If it does, it foments not just trouble within the community, it hurts tribal households that have lent money, too.

The government could have simply opted for harsh punishment for forced recovery and usury/exploitation while increasing the reach of formal finance, not just through bank penetration but also by shifting to direct-cash-transfers for various government benefits. Even if banks can’t treat these funds as some manner of assurance of recovery, it would have allowed them to screen and target tribal households showing responsible financial behaviour for extending credit. A summary waiver, on the other hand, means not just increased vulnerability but also increased likelihood of default on loan repayment from other sources in the hope of a bailout/waiver.